An error account is a type of account used for storing compensation for errors in trading, a transaction that is not posted in a timely manner because of inconsistencies, such as an incorrect account or routing numbers to the wrong name on the account, producing a claim that needs to be resolved as soon as possible so payments can be made.

Transaction processing

When many hundreds or thousands of transactions are being done each day, and whenever there is human input involved, error accounts are necessary to keep the audit trail

Audit trail

Audit trail is a sequence of steps supported by proof documenting the real processing of a transaction flow through an organization, a process or a system.....

 intact. Error accounts also play a role in improving customer service

Customer service

Customer service is the provision of service to customers before, during and after a purchase.According to Turban et al. , “Customer service is a series of activities designed to enhance the level of customer satisfaction – that is, the feeling that a product or service has met the customer...

. GAAP recommends daily or weekly monitoring of error accounts depending on volume and transaction size. It is typically up to the company or applicable government department's accounting department to monitor the error accounts that it has in place.

Error accounts, if not monitored correctly, can lead to disaster as in Nick Leeson

Nick Leeson

Nicholas "Nick" Leeson is a former derivatives broker whose fraudulent, unauthorized speculative trading caused the collapse of Barings Bank, the United Kingdom's oldest investment bank, for which he was sent to prison...

's use of an error account at Barings Bank

Barings Bank

Barings Bank was the oldest merchant bank in London until its collapse in 1995 after one of the bank's employees, Nick Leeson, lost £827 million due to speculative investing, primarily in futures contracts, at the bank's Singapore office.-History:-1762–1890:Barings Bank was founded in 1762 as the...

.

Error accounts can be implemented in manual accounting as well, but this is much less common in the developed world since personal computers became pervasive.

See also

• Generally Accepted Accounting Principles
  Generally Accepted Accounting Principles
  Generally Accepted Accounting Principles refer to the standard framework of guidelines for financial accounting used in any given jurisdiction; generally known as accounting standards...
  
  
• International Financial Reporting Standards
  International Financial Reporting Standards
  International Financial Reporting Standards are principles-based standards, interpretations and the framework adopted by the International Accounting Standards Board ....
  
  
• International Accounting Standards Board
  International Accounting Standards Board
  The International Accounting Standards Board is an independent, privately funded accounting standard-setter based in London, England.The IASB was founded on April 1, 2001 as the successor to the International Accounting Standards Committee...
  
  
• Center for Audit Quality
  Center for Audit Quality
  The Center for Audit Quality is an autonomous public policy organization dedicated to enhancing investor confidence and public trust in the global capital markets...
  
  
• Transaction processing
  Transaction processing
  In computer science, transaction processing is information processing that is divided into individual, indivisible operations, called transactions. Each transaction must succeed or fail as a complete unit; it cannot remain in an intermediate state...